Final Results

Herald Investment Trust PLC 09 February 2006 PRELIMINARY STOCK EXCHANGE ANNOUNCEMENT HERALD INVESTMENT TRUST plc Results for the year to 31 December 2005 9 February 2006 BOARD STATEMENT CHAIRMAN'S STATEMENT 2005 has been another mixed year. Following a year of exceptional earnings growth in 2004 the share of earnings of the Trust's underlying investments, on consensus earnings estimates, grew a further 49% in 2005. This was not reflected in the rise in net assets, which was only 7.9%, so there has been another year of significant derating in the Trust's investee companies. This takes some explanation, and the Manager suggests that this may reflect a number of issues. First, expectations at the start of the year were even higher. Even so generally figures were outstandingly good. Second, a focus by brokers on new issues at the expense of promoting smaller existing companies. It is noticeable that larger small companies, which are more prominent on the radar screen, have higher valuations. Third, the psychology of investors following the bursting of the TMT bubble in 2004 is such that they are not inclined to ascribe a premium for anticipated growth, and prefer dividends. Fourth, there is a fear that earnings will not prove sustainable. Nevertheless, consensus earnings forecasts for 2006 suggest further growth of around 45%, which provides a confident background for the coming year. There has been a noticeable divergence in performance geographically. The overseas portfolios overall rose 16.2%, and the UK, which accounts for 65% of the portfolio, lagged disappointingly, with a return of only 6.4%. The US growth was 7.5% and the Far East 23.9%, both enhanced by currency. The small European portfolio grew 26.3% in sterling and 30.2% in local currencies. The UK performance significantly lagged the Hoare Govett Smaller Companies index, which grew 27.8% in total return terms. However, the sectors in which the fund invests including AIM stocks also lagged the index with a weighted return of the Hoare Govett Index including AIM of 13.4%. Although many investments do not pay dividends the income from equities has grown by 21.6%, which has been reflected in growth in the net income. Unusually for a technology oriented fund we can therefore again continue the Trust's custom of paying a modest dividend. The Board is proposing 0.60p in respect of 2005. Capital growth remains the prime focus. The market for new issues has been almost overwhelming in the UK. Of the 519 AIM issues in 2005, 122 were in Herald's target sectors, which collectively raised in excess of £1bn. In addition there were 684 secondary issues raising a further £358m. Whilst it has been a boom year in London for investment bankers, there has been a conspicuously harsher climate in the US, and far fewer new issues. This was reflected in the Russell 2000 Index declining by 2.5% in $ terms. Sarbanes Oxley has proved a vicious cost for smaller quoted companies, and a deterrent for flotations. The drag on earnings associated with that has now worked through. There continue to be exceptional opportunities and risks in the defined remit. The risks relate to lack of pricing power for companies, in a world of efficient communications and global sourcing, unless they have either a technological differentiator or a strong market position. There are in particular structural problems in the traditional media. On the other hand new technologies are continuing to create new markets to which small companies can adapt readily. Stronger corporate capital expenditure has been a notable driver of profits in 2005, and economists are forecasting strength again in 2006 following a year of strong corporate cash flow in general. Whilst we are a little disappointed by the performance in 2005 the derating makes the prospects all the more encouraging for 2006. Martin Boase Chairman 8 February 2006 HERALD INVESTMENT TRUST plc Statistics and Performance Report At inception At At Performance Performance 16 February 1994 31 December 2004 31 December 2005 since since inception 31 December 2004 Net asset value per 98.7p 379.4p+ 409.2p 7.9% 314.6% Ordinary share Share price++ 90.9p 322.8p 379.8p 17.7% 317.8% FTSE 100 Index 3,417.7 4,814.3 5,618.8 16.7% 64.4% HGSC Index (ext. cap 1,750.0 2,752.2 3,423.2 24.4% 95.6% gains ex investment co's) Russell 2000 (small 83.2* 65.1 71.0 9.1% (14.7%) cap) Technology Index (in sterling terms) * At 9 April 1996, being the date funds were first available for international investment. + Restated, see note 1. ++ Mid Past performance is no guarantee of future performance Portfolio Performance for the 12 months to 31 December 2005 Equity markets Performance (total return) UK 6.4% Europe ex. UK 26.3% Americas 7.5% Japan (4.7%) Asia Pacific ex. Japan 23.9% - ends - For further information please contact: Ms Katie Potts, Manager Herald Investment Trust plc 020 7553 6300 Baillie Gifford & Co. Secretaries 0131 275 2000 The following is the unaudited preliminary statement for the year to 31 December 2005 which was approved by the Board on 8 February 2006. The Directors of Herald Investment Trust plc are recommending to the Annual General Meeting of the Company to be held on 12 April 2006 the payment of a final dividend of 0.60p net (0.30p net last year) per Ordinary share for the year ended 31 December 2005. HERALD INVESTMENT TRUST plc INCOME STATEMENT (unaudited and incorporating the revenue account*) for the year ended for the year ended 31 December 2005 31 December 2004 Revenue Capital Total Revenue Capital Total Restated+ Restated+ £'000 £'000 £'000 £'000 £'000 £'000 Gains on investments - 27,708 27,708 - 14,645 14,645 Exchange difference on loans - (1,989) (1,989) - 1,813 1,813 Currency gains/(losses) - 70 70 - (29) (29) Income (note 2) 5,368 - 5,368 4,776 - 4,776 Investment management fee (3,741) - (3,741) (3,671) - (3,671) Other administrative expenses (275) - (275) (267) - (267) Net return before finance costs and taxation 1,352 25,789 27,141 838 16,429 17,267 Finance costs of borrowings (724) - (724) (501) - (501) Return on ordinary activities before taxation 628 25,789 26,417 337 16,429 16,766 Tax on ordinary activities (72) - (72) (36) - (36) Return on ordinary activities after taxation 556 25,789 26,345 301 16,429 16,730 Return per Ordinary share (note 4) 0.64p 29.45p 30.09p 0.34p 18.73p 19.07p Dividend per Ordinary share 0.60p 0.30p * The total column of this statement is the profit and loss account of the Company. All revenue and capital items in the above statement derive from continuing operations. A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement. + Various changes in accounting policies, as disclosed in note 1, have the cumulative effect of reducing reported net assets by £4,359,000 for the year ended 31 December 2004. HERALD INVESTMENT TRUST plc SUMMARISED BALANCE SHEET at 31 December 2005 (unaudited) 31 December 2005 31 December 2004 Restated+ £'000 £'000 FIXED ASSETS Investments 348,774 320,546 CURRENT ASSETS Debtors 786 1,880 Cash and short term deposits 9,089 34,907 9,875 36,787 CREDITORS: Amounts falling due within one year (note 5) (356) (25,122) Net current assets 9,519 11,665 TOTAL NET ASSETS 358,293 332,211 CAPITAL AND RESERVES Called-up share capital 21,889 21,889 Share premium 73,738 73,738 Capital redemption reserve 63 63 Capital reserve - realised 209,639 202,442 Capital reserve - unrealised 50,309 31,717 Revenue reserve 2,655 2,362 EQUITY SHAREHOLDERS' FUNDS 358,293 332,211 Net asset value per Ordinary share 409.22p 379.43p Ordinary shares in issue (note 6) 87,556,010 87,556,010 + See note 1. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS for the year ended 31 December 2005 (unaudited) 31 December 31 December 2005 2004 £'000 £'000 Shareholders' funds at 1 January as previously stated 336,570 320,884 Prior year adjustments: Revaluation of investments at bid prices (4,622) (4,660) Reversal of provision of final dividend 263 263 Shareholders' funds at 1 January - restated 332,211 316,487 Total recognised gains for the year 26,345 16,730 Shares purchased for cancellation - (743) Dividends appropriated in the year (note 2) (263) (263) SHAREHOLDERS' FUNDS AT 31 DECEMBER 358,293 332,211 HERALD INVESTMENT TRUST plc SUMMARISED CASH FLOW STATEMENT (unaudited) for the year ended for the year ended 31 December 2005 31 December 2004 £'000 £'000 £'000 £'000 NET CASH INFLOW FROM OPERATING ACTIVITIES 1,322 762 NET CASH OUTFLOW FROM SERVICING OF FINANCE (841) (495) FINANCIAL INVESTMENT Purchase of investments (75,037) (65,423) Sale of investments 75,653 85,279 NET CASH INFLOW FROM FINANCIAL INVESTMENT 616 19,856 EQUITY DIVIDEND PAID (263) (263) NET CASH INFLOW BEFORE FINANCING 834 19,860 FINANCING Loans drawn down 24,771 25,769 Loans repaid (51,423) (28,618) Shares repurchased - (743) NET CASH OUTFLOW FROM FINANCING (26,652) (3,592) (DECREASE)/INCREASE IN CASH (25,818) 16,268 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET (DEBT)/ FUNDS (Decrease)/increase in cash in period (25,818) 16,268 Decrease in bank loans 26,652 2,849 Exchange movement on loans (1,989) 1,813 MOVEMENT IN NET/(DEBT) FUNDS IN PERIOD (1,155) 20,930 NET FUNDS/(DEBT) AT 1 JANUARY 10,244 (10,686) NET FUNDS AT 31 DECEMBER 9,089 10,244 RECONCILIATION OF NET REVENUE BEFORE FINANCE COSTS AND TAXATION TO NET CASH INFLOW FROM OPERATING ACTIVITIES Net revenue before finance costs and taxation 27,141 17,267 Gains on investments (25,789) (16,429) Changes in debtors and creditors (53) - Realised currency profit/(loss) 70 (29) Income tax repaid/(suffered) 25 (11) Overseas tax suffered (72) (36) NET CASH INFLOW FROM OPERATING ACTIVITIES 1,322 762 HERALD INVESTMENT TRUST plc DISTRIBUTION OF ASSETS at 31 December 2005 (unaudited) 31 December 2005 31 December 2004 Restated+ % % Equities: United Kingdom 63.9 60.3 Continental Europe 7.0 6.6 Americas 15.6 15.1 Japan - 0.7 Asia Pacific 10.8 7.1 97.3 89.8 Net current assets 2.7 10.2 Total assets (before deduction of bank loans) 100.0 100.0 + See note 1. HERALD INVESTMENT TRUST plc NOTES 1. A number of new UK Financial Reporting Standards have been introduced with which the Company must comply this year. These standards are part of the UK convergence programme with International Accounting Standards and as such have required most UK listed companies to restate prior year figures to reflect the new accounting treatment. The financial statements for the year to 31 December 2005 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements at 31 December 2004 except as detailed below: (a) investments have been valued at fair value through profit and loss in accordance with FRS 26 'Financial Instruments: Measurement'. The effect is to move from a mid to a bid basis of valuation, resulting in a reduction in the value of investments and unrealised capital reserves of £3,830,000 (31 December 2004 - £4,622,000); (b) in compliance with FRS 21, 'Events after the Balance Sheet Date', dividends declared after the period end are no longer treated as a liability at the period end. The effect is to reduce creditors and increase revenue reserves by £525,000 (31 December 2004 - £263,000); (c) the implementation of FRS21 and the 2005 SORP has resulted in changes in the presentation of total returns. Previously dividends paid and payable in respect of a year were disclosed on the face of the Statement of Total Return and the revenue column of that statement was deemed to be the profit and loss account of the Company. We now present an Income Statement which does not show on its face the distribution in respect of equity shares and whilst it still shows information on capital and revenue returns it is the total return column which is regarded as the profit and loss account of the Company. The overall effect of the above changes is to decrease equity shareholders' funds by £3,305,000 (31 December 2004 - £4,359,000). The effect on the profit and loss account is an increase in unrealised gains on investments of £31,000 (31 December 2004 - £38,000) which is shown in the capital returns. The amount recognised as a distribution in the year to 31 December 2005 was the final dividend for the year ended 2004 of 0.30p (£263,000) which was paid on 19 April 2005 (year to 31 December 2004 was the final dividend for the year ended 2003 of 0.30p (£263,000) which was paid on 20 April 2004). 31 December 2005 31 December 2004 £'000 £'000 2. Income Income from investments and interest receivable 5,366 4,759 Other income 2 17 31 December 31 December 2005 2004 2005 2004 Restated Restated £'000 £'000 3. Ordinary dividend Amounts recognised as distributions in the period Previous year's final (paid 19 April 2005) 0.30p 0.30p 263 263 Current year's proposed final dividend 0.60p 0.30p 525 263 The current year's proposed dividend will be paid on 19 April 2006 to all shareholders on the register at the close of business on 31 March 2006. The ex-dividend date is 29 March 2006. HERALD INVESTMENT TRUST plc NOTES (ctd) 31 December 2005 31 December 2004 Restated £'000 £'000 4. Return per ordinary share Revenue return 556 301 Capital return 25,789 16,429 Return per Ordinary share is based on the above totals of revenue and capital and on 87,556,010 Ordinary shares (2004 - 87,745,357) being the weighted average number of Ordinary shares in issue during the year. 5. The Company had a 364 day US$47.35 million multi-currency loan facility with ING Bank N.V. which expired on 25 October 2005. At 31 December 2005 the Company had no borrowings (2004 - £24,663,000 (US$ 47,350,000)). 6. At the Annual General Meeting in April 2005 Shareholders granted the Company authority to purchase shares in the market up to 13,124,645 Ordinary shares (equivalent to 14.99% of its issued share capital at that date). No shares were bought back in the year to 31 December 2005 (2004 - a total of 251,338 Ordinary shares with a nominal value of £62,835 were bought back at the total cost of £742,567). At 31 December 2005 the Company had authority to buy back a further 13,124,645 Ordinary shares. Under the provisions of the Company's Articles share buy-backs are funded from the realised capital reserve. The nominal value of the share capital is maintained by the provision of a capital redemption reserve. 7. The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2005. The financial information for 2004 is derived from the statutory accounts for 2004 and restated as disclosed in note 1 which have been delivered to the Registrar of Companies. The Auditors have reported on the 2004 accounts, their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The statutory accounts for 2005 will be finalised on the basis of the financial information presented in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. This information is provided by RNS The company news service from the London Stock Exchange

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